Her Majesty's Revenue and Customs (HMRC), the U.K.’s tax agency announced a controversial set of recommendations on Wednesday that could harm <a href="https://www.cryptoknowmics.com/news/defi-project-wonderland-is-coming-to-an-end/">Decentralized Finance</a> (DeFi) innovation. 

Ian Taylor, executive director of CryptoUK said:  
<blockquote>“HMRC treats crypto assets as property for tax purposes. However, this is inconsistent with the approach currently being adopted by Government and other regulatory bodies in the UK."</blockquote>
The updated ruling focuses on how digital assets are treated in the UK for DeFi <a href="https://www.cryptoknowmics.com/news/defi-lending-startup-aave-launches-permissioned-platform-to-induce-financial-institutions/">lending</a> and staking, and whether the returns or incentives from these activities are taxed or not. Due to the cutting-edge nature of DeFi, tax specialists were confused about how the existing regulations apply to these services.

HMRC stated: 
<blockquote>“The lending/staking of tokens through DeFi is a constantly evolving area, so it is not possible to set out all the circumstances in which a lender/liquidity provider earns a return from their activities and the nature of that return. Instead, some guiding principles are set out.”

“HMRC has updated its guidance on the treatment of crypto and digital assets, specifically for DeFi lending and staking in the UK, significantly altering their classification and treatment.” </blockquote>
According to the guidance, returns from staking and lending DeFi assets will not be treated as ‘interest’, because digital assets aren't considered currencies in the UK, but rather property for tax reasons. 

However, the guidance suggests that in many circumstances, this technique will signal that beneficial ownership of those tokens has been moved to the platform, which could cause tax problems for stakeholders. This would imply that they were sold for tax purposes and would be subject to Capital Gains Tax. 

According to Ian Taylor, executive director of CryptoUK, these new <a href="https://www.cryptoknowmics.com/news/tusk-ventures-ceo-urged-us-authorities-to-implement-regulations-on-metaverse/">regulations</a> will impose an unnecessary burden on crypto investors that is not imposed on stock market investors when lending shares:
<blockquote>“HMRC treats crypto assets as property for tax purposes. However, this is inconsistent with the approach currently being adopted by Government and other regulatory bodies in the UK, including the Treasury and the FCA.”</blockquote>
According to Taylor, the new regulations impose undue reporting obligations for consumers and cause tax compliance complexity because investors have to report hundreds or even thousands of transactions. 
<blockquote>“This is out of step with the Government’s stated aim for the UK to be open and attractive as a destination for investment and innovation post Brexit,” he said. </blockquote>
Matt Hancock, the former Secretary of State for Health and Social Care and now a Member of Parliament (MP) in the United Kingdom, encouraged the House of Commons to pass a progressive crypto policy to make England the home of <a href="https://www.cryptoknowmics.com/news/cryptocurrency-gaming-and-metaverse-projects-to-look-out-for-in-2022/">cryptocurrency</a> last week. In November last year, HMRC issued regulations about the imposition of a digital services tax on crypto exchanges operating in the United Kingdom.

UK Tax Agency Released New Guidelines Around DeFi

The U.K.’s tax agency announced a controversial set of recommendations on Wednesday that could harm Decentralized Finance (DeFi) innovation. 

Yash completed his graduation in b.tech (Computer Science ). Yash is passionate about applications of blockchain technology. Yash believes use of blockchain technology can transform our lives at a large scale. Yash daily reads articles, research reports and also  documentation of different protocols. Yash listen to podcasts to know the view of industry experts.

UK Tax Agency Released New Guidelines Around DeFi

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